Waste Management Announces First Quarter Earnings

Net Income Grows More Than 35 Percent and Income from Operations
Margin Grows 170 Basis Points

April 24, 2014 07:30 AM Eastern Daylight Time

HOUSTON--(BUSINESS WIRE)--Waste Management, Inc. (NYSE: WM) today announced financial results for
its quarter ended March 31, 2014. Revenues for the first quarter of 2014
were $3.40 billion compared with $3.34 billion for the same 2013 period.
Net income(a) for the quarter was $228 million, or $0.49 per
diluted share, compared with $168 million, or $0.36 per diluted share,
for the first quarter of 2013. In the first quarter of 2013, adjusted
net income was $186 million, or $0.40 per diluted share.(b)

David P. Steiner, President and Chief Executive Officer of Waste
Management, commented, “We saw continued and strong momentum in both
yield and cost controls in the first quarter of 2014 that helped drive a
more than 35% improvement in reported net income, and more than 22%
growth in earnings per share when looking at first quarter 2013 adjusted
results. We also saw an increase of 170 basis points in our reported
income from operations margin, or 140 basis points when compared to our
first quarter 2013 adjusted results. Our yield was 2.6%, the highest
level since 2011 and the fourth consecutive quarter over 2.0%. We also
achieved SG&A cost savings of $15 million compared to the first quarter
of 2013. During the first quarter, our net cash provided by operations
improved to $584 million, our capital expenditures were constant at $266
million, and we had $166 million of divestiture proceeds, all of which
resulted in free cash flow of $484 million, our highest amount since
2008.” (b)

KEY HIGHLIGHTS FOR THE FIRST QUARTER 2014

Revenue increased by 1.8%, or $60 million; excluding a negative $17
million in foreign currency translation, revenue would have increased
2.3%.

Internal revenue growth from yield for collection and disposal
operations was 2.6%.

Core price, which consists of price increases and fees, other than the
Company’s fuel surcharge, net of rollbacks, was 4.2%, up from 3.2% in
the first quarter of 2013.

Internal revenue growth from volume was negative 1.8%, a 40 basis
point sequential improvement from the fourth quarter of 2013.

Average recycling commodity prices were approximately 1.8% lower in
the first quarter of 2014 compared with the prior year period. In
total, recycling operations negatively affected earnings by less than
$0.01 per diluted share when compared to the prior year period.

Operating expenses increased by $23 million compared to the prior year
period. The majority of the increase relates to operating costs within
acquired operations, primarily the Company’s Montreal acquisition. As
a percent of revenue, operating expenses were 65.7% in the first
quarter of 2014, as compared to 66.2% in the first quarter of 2013, an
improvement of 50 basis points.

SG&A expenses improved by $15 million compared with the first quarter
of 2013 and improved to 11.0% of revenue from 11.7% in the prior year
period.

Net cash provided by operating activities was $584 million, an
improvement of $7 million when compared to the first quarter of 2013,
despite over $100 million in working capital headwinds from the
payment of incentive compensation and the maturity of interest rate
swaps related to a planned senior note issuance. Capital expenditures
were $266 million. The Company had $166 million of divestiture
proceeds in the quarter, primarily related to the sale of its China
waste-to-energy joint venture.

Free cash flow increased $136 million to $484 million in the first
quarter of 2014.(b)

The Company returned $174 million to shareholders in the form of
dividends.

The effective tax rate was approximately 29.6%. This rate was lower
compared to the prior year due to a non-cash adjustment to deferred
taxes resulting from a change in state tax law. The net effect of the
benefit was a positive $0.02 per diluted share in the first quarter
when compared to the first quarter of 2013.

Steiner concluded, “We are on target through the first quarter and
encouraged by the positive momentum in our business. At the beginning of
the year, we gave guidance that our 2014 free cash flow would exceed
$1.3 billion. With our strong first quarter, we now expect to generate
between $1.4 billion and $1.5 billion of free cash flow. With respect to
the other elements of our initial full-year guidance, it is difficult to
predict underlying business trends in the first quarter due to winter
seasonality. However, early April volumes indicate a normal seasonal
upturn, but it is only three weeks. After we see the effect on results
from our seasonality through the full second quarter, we will likely
refine our full-year guidance to reflect any underlying business trends.”
(b)

(a)For purposes of this press release, all references
to “Net income” refer to the financial statement line item “Net income
attributable to Waste Management, Inc.”

(b)This press release includes adjusted net income and
adjusted earnings per diluted share for the first quarter of 2013, which
are non-GAAP measures as defined in Regulation G of the Securities
Exchange Act of 1934, as amended, as well as a comparisons to first
quarter of 2013 adjusted earnings per diluted share and adjusted income
from operations margin. The Company reports its financial results in
compliance with GAAP, but believes that also discussing non-GAAP
measures provides investors with (i) additional, meaningful comparisons
of current results to prior periods’ results by excluding items that the
Company does not believe reflect its fundamental business performance
and are not representative or indicative of our results of operations
and (ii) financial measures the Company uses in the management of its
business.

The Company’s projected full year 2014 earnings per diluted share
are not based on GAAP net earnings per diluted share and are anticipated
to be adjusted to exclude the effects of events or circumstances in 2014
that are not representative or indicative of the Company’s results of
operations.Projected GAAP earnings per diluted share for the
full year would require inclusion of the projected impact of future
excluded items, including items that are not currently determinable, but
may be significant, such as asset impairments and one-time items,
charges, gains or losses from divestitures or litigation, or other
items. Due to the uncertainty of the likelihood, amount and timing of
any such items, the Company does not have information available to
provide a quantitative reconciliation of adjusted projected full year
earnings per diluted share to a GAAP earnings per diluted share
projection.

The Company also discusses free cash flow and provides a projection
of free cash flow, which is a non-GAAP measure, because it believes that
it is indicative of our ability to pay our quarterly dividends,
repurchase common stock, fund acquisitions and other investments and, in
the absence of refinancings, to repay our debt obligations. Free cash
flow is not intended to replace “Net cash provided by operating
activities,” which is the most comparable U.S. GAAP measure. However,
the Company believes free cash flow gives investors useful insight into
how the Company views its liquidity. Nevertheless, the use of free cash
flow as a liquidity measure has material limitations because it excludes
certain expenditures that are required or that the Company has committed
to, such as declared dividend payments and debt service requirements.
The Company's definition of free cash flow may not be comparable to
similarly titled measures presented by other companies, and therefore is
not subject to comparison.The Company defines free cash flow
as:

Net cash provided by operating activities

Less, capital expenditures

Plus, proceeds from divestitures of businesses and other assets
(net of cash divested).

The quantitative reconciliations of free cash flow for the quarter
and adjusted first quarter of 2013 net income, earnings per diluted
share, and income from operations margin to the most comparable GAAP
measures are included in the accompanying schedules. Non-GAAP measures
should not be considered a substitute for financial measures presented
in accordance with GAAP, and investors are urged to take into account
GAAP measures as well as non-GAAP measures in evaluating the Company.

The Company will host a conference call at 10:00 AM (Eastern) today to
discuss the first quarter 2014 results. Information contained within
this press release will be referenced and should be considered in
conjunction with the call.

The conference call will be webcast live from the Investor Relations
section of Waste Management’s website www.wm.com.
To access the conference call by telephone, please dial (877) 710-6139
approximately 10 minutes prior to the scheduled start of the call. If
you are calling from outside of the United States or Canada, please dial
(706) 643-7398. Please utilize conference ID number 10543459 when
prompted by the conference call operator.

A replay of the conference call will be available on the Company’s
website www.wm.com
and by telephone from approximately 1:00 PM (Eastern) Thursday, April
24, 2014 through 5:00 PM (Eastern) on Thursday, May 8, 2014. To access
the replay telephonically, please dial (855) 859-2056, or from outside
of the United States or Canada dial (404) 537-3406, and use the replay
conference ID number 10543459.

The Company, from time to time, provides estimates of financial
and other data, comments on expectations relating to future periods and
makes statements of opinion, view or belief about current and future
events. This press release contains a number of such forward-looking
statements, including but not limited to statements regarding, 2014
earnings per diluted share and earnings growth or improvement; 2014 free
cash flow; second quarter of 2014 trends and results; future revisions
to full-year guidance;and future results from pricing, capital
discipline and cost control and reduction initiatives. You should view
these statements with caution. They are based on the facts and
circumstances known to the Company as of the date the statements are
made. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to be materially different
from those set forth in such forward-looking statements, including but
not limited to, increased competition; pricing actions; failure to
implement our optimization, growth, and cost savings initiatives and
overall business strategy; environmental and other regulations;
commodity price fluctuations; disposal alternatives and waste diversion;
declining waste volumes; failure to develop and protect new technology;
significant environmental or other incidents resulting in liabilities
and brand damage; weakness in economic conditions; failure to obtain and
maintain necessary permits; labor disruptions; impairment charges; and
negative outcomes oflitigation or governmental proceedings.Please
also see the Company’s filings with the SEC, including Part I, Item 1A
of the Company’s most recently filed Annual Report on Form 10-K, for
additional information regarding these and other risks and uncertainties
applicable to our business.The Company assumes no obligation to
update any forward-looking statement, including financial estimates and
forecasts, whether as a result of future events, circumstances or
developments or otherwise.

ABOUT WASTE MANAGEMENT

Waste Management, Inc., based in Houston, Texas, is the leading provider
of comprehensive waste management services in North America. Through its
subsidiaries, the company provides collection, transfer, recycling and
resource recovery, and disposal services. It is also a leading
developer, operator and owner of waste-to-energy and landfill
gas-to-energy facilities in the United States. The company’s customers
include residential, commercial, industrial, and municipal customers
throughout North America. To learn more information about Waste
Management visit www.wm.com
or www.thinkgreen.com.

Intercompany revenues between lines of business are eliminated
within the Condensed Consolidated Financial Statements included
herein.

(b)

The summary of free cash flows has been prepared to highlight and
facilitate understanding of the principal cash flow elements. Free
cash flow is not a measure of financial performance under
generally accepted accounting principles and is not intended to
replace the consolidated statement of cash flows that was prepared
in accordance with generally accepted accounting principles.

Represents amounts associated with business acquisitions
consummated during the indicated periods except for Cash paid for
acquisitions, which may include cash payments for business
acquisitions consummated in prior quarters.

(b)

The quarter ended March 31, 2014 as compared to the quarter ended
December 31, 2013 reflects a decrease in amortization expense of
approximately $3.7 million, primarily due to changes in landfill
estimates identified in both quarters and by a decrease in volumes
primarily due to seasonality.

(c)

The quarter ended March 31, 2014 as compared to the quarter ended
March 31, 2013 reflects a decrease in amortization expense of
approximately $12.1 million due to changes in landfill estimates
identified in both quarters.

More than 22% growth in as-reported earnings per diluted share in
the first quarter of 2014 over adjusted earnings per diluted share
in first quarter of 2013.

(b)

Includes impairment charges associated with certain of our
investments in unconsolidated entities that are included in the
"Other, net" financial caption, as well as net charges in the "Asset
Impairments and Unusual Items" financial caption.

(c)

The reconciliation illustrates two scenarios that show our projected
free cash flow for 2014. The amounts used in the reconciliations are
subject to many variables, some of which are not under our control,
and are not necessarily representative or indicative of full year
results.

Income from Operations as a percent of Revenues and
Operating EBITDA as a percent of Revenues

Amount

As a % of Revenues

Operating revenues, as reported

$

3,396

Income from operations, as reported

469

(a)

13.8

%

(a)

Depreciation and amortization

317

Operating EBITDA and Operating EBITDA

as a percent of Revenues, as reported

$

786

(b)

23.1

%

(b)

Quarter Ended

March 31, 2013

Adjusted Income from Operations as a percent of Revenues and
Adjusted Operating EBITDA as a percent of Revenues

Amount

As a % of Revenues

Operating revenues, as reported

$

3,336

Income from operations, as reported

402

Adjustments to Income from operations:

Asset impairments and unusual items

4

Restructuring charges

8

12

Income from operations, as adjusted

414

(a)

12.4

%

(a)

Depreciation and amortization

323

Adjusted Operating EBITDA and Adjusted Operating

EBITDA as a percent of Revenues

$

737

(b)

22.1

%

(b)

(a)

Income from operations for the first quarter of 2014 increased $55
million, or more than 13%, and income from operations as a percent
of revenues increased 140 basis points, in each case as compared
with adjusted results for the same period prior year.

(b)

Operating EBITDA for the first quarter of 2014 grew $49 million, or
6.6%, and operating EBITDA as a percent of revenues increased 100
basis points, in each case as compared with adjusted results for the
same period prior year.

The Company defines Operating EBITDA as income from operations
before depreciation and amortization, and the Company’s Adjusted
Operating EBITDA for the first quarter of 2013 excludes the items
noted above. This measure may not be comparable to similarly
titled measures reported by other companies. Management uses
Operating EBITDA as an indicator of the Company’s operating
performance and ability to pay dividends, fund acquisitions,
capital expenditures and other investments and, in the absence of
refinancing, to repay debt obligations. Management believes
Adjusted Operating EBITDA is helpful to investors evaluating the
Company’s operating performance because certain non-cash costs and
other items that management believes are not representative of our
performance or indicative of our results of operations are
excluded. Operating EBITDA and Adjusted Operating EBITDA are
supplemental non-GAAP measures and should not be considered an
alternative to net income, income from operations, or net cash
provided by operating activities.